Sanmina-SCI (SANM)

Stock-based Compensation
Expense, which consists of non-cash charges for the
estimated fair value of stock options and unvested restricted stock units
granted to employees, is excluded in order to permit more meaningful period-to-period
comparisons of the Companys results since the Company grants different amounts
and value of stock options in each quarter. In addition, given the fact that
competitors grant different amounts and types of equity award and may use
different option valuation assumptions, excluding stock-based compensation
permits more accurate comparisons of the Companys core results with those of
its competitors.

Stock-based Compensation
Expense, which consists of non-cash charges for the
estimated fair value of stock options and unvested restricted stock units
granted to employees, is excluded in order to permit more meaningful
period-to-period comparisons of the Companys results since the Company grants
different amounts and value of stock options in each quarter. In addition,
given the fact that competitors grant different amounts and types of equity
award and may use different option valuation assumptions, excluding stock-based
compensation permits more accurate comparisons of the Companys core results
with those of its competitors.

Stock-Based
Compensation Expense.In
May 2006, two analyst research reports were published wherein it was
suggested that based on their analysis of the Companys proxy statements that
were filed with the Securities and Exchange Commission (SEC), the Company may
have backdated stock option grants (the Reports) with respect to the officers
of the Company.

Shortly after the
Reports were published, the Company was contacted by the SEC with respect to
its option practices for the years mentioned in the Reports. As a result of the
publication of the Reports and concurrent with the SECs informal inquiry, a
special meeting of the Board of Directors was convened on June 8, 2006. In
response to these circumstances, the Board of Directors immediately created a
Special Committee, which was comprised of independent disinterested directors,
to conduct a comprehensive review of grants of stock options and restricted
stock. The investigation was conducted with the assistance of a law firm and
outside accounting consultants not previously involved with the Companys stock
option plans and Equity Plan administration. The review focused on the
following:

·Option
grants made to all employees, directors and consultants during the period from January 1997
through June 2006 (the Investigation Period);

·Restricted
stock grants during the period from September 2003 (the date of the first
grant of restricted stock) through July 2006; and

The Special Committee investigated substantially all
of the option and restricted stock grants issued to individuals at all levels
of the Company, including its directors and officers, during the Investigation
Period. As a result of the investigation, it was determined that the original
measurement date used by the Company for accounting purposes (the Record Date)
for most of the options and restricted stock issued by the Company from January 1997
to June 2006 did not correspond to the closing price of the Companys
common stock on the appropriate measurement date. In nearly all such cases, the
Record Date preceded the appropriate measurement date and the stock price on
the Record Date was lower than the price on the appropriate measurement date.

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In assessing how the errors relating to stock option
accounting occurred, the investigation report identified concerns with respect
to the actions of two former executives of the Company who were each involved
in the authorization, recording and reporting of stock option grants, restricted
stock grants and stock option modifications related to employee terminations.
In addition, the investigation report also identified deficiencies in internal
controls, including the process of preparing and retaining accurate
documentation relating to the Companys stock option plan administration
activities.

The Companys historical procedures and methodologies
for determining the number of shares and the Record Date of stock option and
restricted stock grants made during the Investigation Period varied depending
on the classification of the recipients of such awards. The following
discusses, by category, the stock-based compensation processes generally
followed by the Company to authorize and approve stock-based compensation
awards:

Stock-Based Compensation Expense.
In May 2006, two analyst research reports were published wherein it was
suggested that based on their analysis of the Companys proxy statements that
were filed with the Securities and Exchange Commission (S.E.C), the Company
may have backdated stock option grants (the Reports) with respect to the
officers of the Company.

Shortly after the Reports
were published, the Company was contacted by the SEC with respect to its option
practices for the years mentioned in the Reports. As a result of the
publication of the Reports and concurrent with the SECs informal inquiry, a
special meeting of the Board of Directors was convened on June 8, 2006. In
response to these circumstances, the Board of Directors immediately created a
Special Committee, which was comprised of independent disinterested directors,
to conduct a comprehensive review of grants of stock options and restricted
stock. The investigation was conducted with the assistance of a law firm and
outside accounting consultants not previously involved with the Companys stock
option plans and Equity Plan administration.
The review focused on the following:

·Option grants made to all employees,
directors and consultants during the period from January 1997 through June 2006
(the Investigation Period);

·Restricted stock grants during the period
from September 2003 (the date of the first grant of restricted stock) through
July 2006; and

The Special Committee
investigated substantially all of the option and restricted stock grants issued
to individuals at all levels of the Company, including its directors and
officers, during the Investigation Period. As a result of the investigation, it
was determined that the original measurement date used by the Company for
accounting purposes (the Record Date) for most of the options and restricted
stock issued by the Company from January 1997 to June 2006 did not correspond
to the closing price of the Companys common stock on the appropriate
measurement date. In nearly all such cases, the Record Date preceded the
appropriate measurement date and the stock price on the Record Date was lower
than the price on the appropriate measurement date.

In assessing how
the errors relating to stock option accounting occurred, the investigation
report identified concerns with respect to the actions of two former executives
of the Company who were each involved in the authorization, recording and
reporting of stock option grants, restricted stock grants and stock option
modifications related to employee terminations. In addition, the investigation
report also identified deficiencies in internal controls, including the process
of preparing and retaining accurate documentation relating to the Companys
stock option plan administration activities.

The Companys
historical procedures and methodologies for determining the number of shares
and the Record Date of stock option and restricted stock grants made during the
Investigation Period varied depending on the classification of the recipients
of such awards. The following discusses, by category, the Equity Award
processes generally followed by the Company to authorize and approve
equity-based compensation awards:

Board of
Director Grants.
Non-employee Directors generally received automatic option grants
pursuant to the 1995 Directors Option Plan on October 1, or the first trading
day thereafter.

Officer
Grants. Equity
awards issued to employees of the Company were issued pursuant to the Companys
1990 and 1999 Stock Option Plans. Equity awards issued to reporting persons
as that term is defined under Section 16 of the Securities Exchange Act of
1934, as amended (Officers) were issued by authority of the Compensation
Committee. Officer stock option grants were generally awarded annually at the
October meeting of the Compensation Committee.

Non-Officer
Grants. Equity
awards issued to non-Officer employees of the Company were generally
administered as follows. First, the
Compensation Committee met and authorized a pool of stock options and
restricted stock to be set aside for issuance to employees and delegated to
management the responsibility for allocating the awards to specific recipients
pursuant to the stock plan. Upon
managements conclusion of this allocation process, a final list of award
recipients, along with the number of stock options and/or restricted stock to
be awarded to each individual was presented to executive management for final
review and approval.

Results of the Special
Committees investigation generally concluded that the Record Date used to
account for most of the equity awards issued by the Company from January 1997
to June 2006 differed from the appropriate

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measurement date.
In nearly all such cases, the stock price on the appropriate measurement
date was higher than the price on the Record Date. The types of grant discrepancies uncovered by
the investigation and the financial statement impact of these errors is
summarized as follows:

Misdated
Grants. From
Fiscal 1997 through June 2006, the Company granted options on eleven different
dates to its Officers. The investigation identified that the Record Date
required revision on all seven (7) Officer Grants issued prior to October 2002
and no revisions were necessary for Officer Grants issued from October 2002 to
the present. It was also determined that the Record Dates required revision
with respect to nineteen (19) of the twenty-one (21) non-Officer Grants issued
during the Investigation Period. In
nearly all cases, the Record Date preceded the appropriate measurement date and
the stock price on the Record Date was lower than the price on the appropriate
measurement date. With regard to these discrepancies, the Record Date originally
used by the Company in some cases preceded the date a definitive list of equity
award recipients was approved. In other
cases the stock price declined and the Record Date used was subsequent to the
completion of the definitive list. As
such, the revised measurement date was
based on the date when the granting process of each of the Companys grants was
finalized. As a result, the Company has
recognized pre-tax compensation expense of $115.2 million, (including
restricted shares) relating to correcting the Record Date for the fiscal period
1997 through 2005. For the three and nine month periods ended July 2, 2005, the
Company recognized pre-tax incremental stock based compensation of approximately
$15.0 million and $17.0 million, respectively.